Chevron Strikes While the Iron Is Cold

Throughout 2010, we've documented the scramble by independent exploration and production companies to tilt their production mix in favor of oil and natural gas liquids. From big boys like Chesapeake Energy(NYSE: CHK), which now promises to become a "top five" U.S. liquids producer by 2015, to smaller shops like Carrizo Oil & Gas, everyone seemingly has oil on the brain.

There are some exceptions among the independents. Range Resources(NYSE: RRC) recently doubled down on the Marcellus shale (which is admittedly liquids-rich in spots), while gas-weighted EXCO Resources(NYSE: XCO) is facing the launch of a management-led takeover -- or is it a takeunder? On the whole, though, onshore producers are shifting toward oil and liquids en masse, and like EOG Resources, are willing to dump gas assets to fund the transition.

This all suggests to me that it's a great time to be a buyer of natural gas. In fact, I've been going to bat for certain gas-weighted producers since the summer. Today, Chevron(NYSE: CVX) demonstrated a similar contrarian bent, as it agreed to buy out Marcellus player Atlas Energy(Nasdaq: ATLS) for $4.3 billion, including assumed debt.

The purchase makes perfect sense. My only question is: Why so modest, Chevron? Why buy Atlas when you could grab Range Resources or Cabot Oil & Gas(NYSE: COG) or Ultra Petroleum(NYSE: UPL)? Before today, all were trading at modest valuations. Of course, each is trading higher today, because the natural gas space is suddenly deemed "in play" by the momentum-chasing hot money.

The point of value investing isn't to strike while the iron is hot. Apache clearly gets this, as demonstrated by purchases of tossed-off assets like Devon Energy's shallow-water Gulf of Mexico portfolio. I'm glad to see Chevron embracing this principle of striking while the iron is cold as well.